CONCEPT OF AGENCY 

An agency is a relationship between two parties in which one party has the rights to represent the other person and coming into a legal relationship on his behalf with the third party. Contract of the agency includes two people. One is an agent and the other one is the principal.

Section 182 of the Indian Contract Act, 1872 defines agent and principal as “An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with the third person. The person for whom such act is done, or who is so represented, is called the ‘principal’.” 

Features of the Agency:

1. Legally Binding: The basic characteristic of the contract of agency is that the principal is legally responsible for every action of the agent made by him during employment.  
2. No mandatory Compensation: In the contract of agency, consideration is not mandatory. In the relation of agent and principal consideration may or may not be present.
3. The capacity of Principal: section 184 of the Indian Contract Act, 1872 defines the capacity of principal it states “Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.” 
4. Authority to Contract: in the contract of agency, agent comes into the contract on the behalf of the principal and hence agent need to be competent enough to contract. “Who can be an agent” is described in section 184 of the Indian Contract Act which states, “As between the principal and third-person any person may become an agent, but no person who is not of the age of majority and sound mind can become an agent, to be responsible to his principal according to the provisions in that behalf herein contained.”

Creation of Agency: Agency can be created in the following ways:

1. Express Agency: When the parties come into the contract of the agency which is either written or oral then it’s said to be an express agency. In such contracts authority to act on the behalf of the principal is transferred to the agent, subject to the conditions of the contract.
2. Implied Agency: Implied means something which is not clearly stated, hence implied agency is formed by the way of conduct of the parties.
3. Agency of Necessity: Sometimes the party is bound to come into the contract of agency. For example, Raman gave his bike to Raghav, Raghav is bound to take the reasonable care of that bike and has to bear the necessary expenses to safeguard his bike.
4. Agency of Ratification: If the agent does any work which is beyond his authority, then the principal will not be liable for his actions. However, he may ratify the agent by accepting the liability for the actions of his agent. This constitutes the contract of ratification.